First, there were Empowerment Zones (EZ) and Enterprise
Communities (EC). HUBzones followed. Now President Clinton and
House Speaker Dennis Hastert (R-IL) are negotiating on a third
federal program to lure small businesses to inner cities: a
so-called New Markets Initiative.

Clinton proposed the program in early 1999 as part of his fiscal
2000 SBA budget. But Congress turned its nose up and did nothing
with the bundle of programs, which focused on establishing one-stop
financing offices in poverty-stricken inner cities. In November,
though, Clinton and Hastert met to discuss the idea.

Any compromise will probably combine elements of New Markets
with elements from a bipartisan proposal called Renewal
Communities. Both concepts are aimed at similar suburban targets:
census tracts with poverty rates above 20 percent or family median
incomes below 80 percent of the statewide average. Reps. Jim Talent
(R-MO), chair of the Small Business Committee, J.C. Watts Jr.
(R-OK) and Danny Davis (D-IL) have been the prime movers behind
Renewal Communities, which build on the EZ concept. The Clinton
administration has designated 147 EZs and ECs since 1994 from the
hundreds of communities that have applied. Businesses located in
these areas qualify for federal grants and fairly limited federal
tax benefits.

Renewal Communities would offer businesses expanded tax
incentives, such as capital gains tax relief, increased expensing,
and commercial building renovation tax credits. In addition, cities
and counties would have to waive some state and local occupational
licensing regulations and other barriers to business entry. The
Talent/Watts/Davis approach has been unacceptable to some members
of Congress, though, because it could provide vouchers to religious
groups, which would use the money to provide drug- and
alcohol-abuse treatment.

The New Markets Initiative would offer businesses a different
incentive: access to financing provided by venture capitalists and
lending companies that would receive SBA-backed funding. For
example, there would be a pilot program to create 10 new
market-lending companies which would be nondepository institutions.
It would make SBA-guaranteed loans under the 7a loan program. Also,
the proposal would provide tax credits to individuals who invested
in those new, inner-city financial companies. "These would be
like remote SBA offices serving as one-stop capital shops,"
says Mike Stamler of the SBA.

As long as they met low-income criteria, Renewal Communities (or
New Markets) could offer businesses their federal benefits. There
would be no competitive application process as there is with EZs
and ECs, so there could be thousands of Renewal Communities or New
Market areas. Many would be co-located with HUBzones, the federal
program established in 1997 that gives a federal contracting
preference to companies that employ local residents.

But Republicans don't like the idea of setting up a new
layer of federal bureaucracy as a way of launching distressed areas
toward regeneration. Jack Horner, an aide to Watts, also raises the
concern that the owners of these New Market financial companies
would live outside the distressed area and therefore be divorced
from any real feel for its future.

Democrats and Republicans found little to compromise on in the
1999 congressional session, but they are still negotiating. The
political distance between Renewal Communities and New Markets is
pretty short. It shouldn't take too much stretching to reach
across the divide this year.

Stephen Barlas is a business reporter who covers the
Washington beat for 15 magazines.